Commission prepares changes to energy subsidy reform

The European Commission is preparing to retreat on some elements of reform of state subsidies for renewable energy.

European Voice has seen a draft version of guidelines that the Commission is to publish on 9 April, setting out what kinds of subsidies member states are allowed to offer their renewable energy industries without falling foul of European Union rules on state aid. Those guidelines are supposed to reduce distortions to the internal market, which have, for example, seen traditional energy companies in neighbouring countries complain about subsidies in Germany that prompted excessive production.

Germany subsequently cut back its feed-in tariffs paid by the state to generators of renewable energy. In Spain, generous feed-in tariffs were suspended to save on public finances. The guidelines call for greater co-ordination to take into account the effects of such policy changes on neighbouring countries.

The Commission put forward an initial draft for public consultation back in December, but significant changes have since been made to a version that emerged last week from inter-departmental discussions.

The initial draft required states to have a bidding process for public subsidies, so that generators of renewable energy would compete against each other.

Technologies

Whereas the Commission had initially sought to distinguish between renewable energy technologies that are still in development and those that are already mature, this distinction has not survived in the revised draft. The initial thinking was that governments should not be subsidising technologies that no longer needed assistance in order to compete against hydrocarbons or nuclear energy. Without a distinction, there is a risk that more mature technologies will be over-compensated and shut out emerging technologies from the market. However, lobbyists from the renewable energy sector claimed that unless the Commission adopted a technology-neutral approach that treated all renewables the same, regardless of maturity, then rival renewable energy technologies might harm each other.

The latest draft maintains the Commission’s intention to mandate bidding processes for most subsidies, but introduces a series of exceptions that member states could use to avoid this requirement. Germany, which is adamantly opposed to mandatory bidding, has been lobbying against the proposal, with France, Italy and the UK also opposed.

The revised draft would also delay the start of restrictions on subsidies, introducing a transitional phase from 2015 to 2017, when only 5% of renewable energy capacity would require bidding. Wind farms that generate less than 6 megawatts would not be subject to bidding. The guidelines are supposed to take effect from July.

Government support for renewable energy is estimated to have cost the EU more than €30 billion in 2010. The Commission wants to reduce this by replacing feed-in tariffs with tradeable green certificates.